CFA Selling Dreams

I work in the back office of a large bank in NYC and thought that I would take the CFA to try and advance my career to what I ultimately want to do which is an investing role. I am indifferent between HF or LO but the stock market is something I am very passionate about and unfortunately didn’t realize it when I was still in school.

I have been in my first role out of school for about a year and have been studying for level 1 which I am taking next month. Now that the exam is coming up I feel ready but skeptical that this will actually help with my career. There are over 160k charter holders according to CFAI and there is no way that all of them have good buyside seats. I have met several people in similar situations to mine and wanted to hear some thoughts on how useful it is for actually getting a job. Maybe it would have helped it I was an undergrad still but ultimately I think business school is my only shot at breaking into AM or HF careers.

 

I think this is pretty common knowledge at this point. If you want to move to front office go to MBA and work in IB. That’s the most certain pipeline. Think investing seats are hard to come by out of MBA unless you did analyst stint. 

 

The CFA credential is a victim of its own success. There was a time in history maybe 15 years ago when it was at the height of its "prestige" and ability to advance a career. That created a ton of demand for the credential, so the CFAI expanded testing dates (and I think testing locations) and decreased the (inflation-adjusted) cost. It's not a "dime a dozen" credential yet, but it's about a dollar a dozen at this point. There was a time at its height where the CFA charter would replace a master's degree in its ability to advance a career, but I don't see that anymore. 

Simple CFA history: it used to be a pretty easy exam process that few people pursued (1980s/1990s). In time, it gained notoriety and with it they made the exam much more difficult, and they coupled it with extremely limited exam dates--twice a year for L1, once a year for L2/3 (2000s/2010s) + the exam was quite expensive (several thousand dollars in the 2000s). My L1 exam year, the pass rate on that test was something like 35%. This made the credential really difficult to obtain, not just because of the exam difficulty but because of the logistics and cost. Now the exam appears to have been democratized: the cost (especially relative to inflation) is much cheaper (just $900) with many employers paying for it, the pass rates are up (not hugely but with clear statistical significance: 41% 10-year pass rate for L1, which I assume means recent pass rates in the mid-40s), and the exam dates and locations have expanded. This will necessarily--in time--make the credential less valuable.  

 
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GregMadeMeDoIt

The CFA credential is a victim of its own success. There was a time in history maybe 15 years ago when it was at the height of its "prestige" and ability to advance a career. That created a ton of demand for the credential, so the CFAI expanded testing dates (and I think testing locations) and decreased the (inflation-adjusted) cost. It's not a "dime a dozen" credential yet, but it's about a dollar a dozen at this point. There was a time at its height where the CFA charter would replace a master's degree in its ability to advance a career, but I don't see that anymore. 

Simple CFA history: it used to be a pretty easy exam process that few people pursued (1980s/1990s). In time, it gained notoriety and with it they made the exam much more difficult, and they coupled it with extremely limited exam dates--twice a year for L1, once a year for L2/3 (2000s/2010s) + the exam was quite expensive (several thousand dollars in the 2000s). My L1 exam year, the pass rate on that test was something like 35%. This made the credential really difficult to obtain, not just because of the exam difficulty but because of the logistics and cost. Now the exam appears to have been democratized: the cost (especially relative to inflation) is much cheaper (just $900) with many employers paying for it, the pass rates are up (not hugely but with clear statistical significance: 41% 10-year pass rate for L1, which I assume means recent pass rates in the mid-40s), and the exam dates and locations have expanded. This will necessarily--in time--make the credential less valuable.  

1) recent L1 pass rate is still near 35% as Sio mentioned above

2) offering additional locations and dates to take an exam shouldn't be considered as something that diminishes value of the certificate. it's still only twice a year. and yeah you can take it in Chicago instead of flying to NYC, but how is it bad for prestige/reputation of the designation

3) $900 is still a pretty big cost to take an exam. add to that Kaplan materials cost, which is another $1k or more. and every time you fail, you need to pay another $2k for registration and materials. but the main cost is the amount of time you need to spend on it.

overall, I'd say it's more difficult to pass CFA now than before because they continue adding material. like 20 years ago, they'd just ask you about WACC and FCF. now you're supposed to know detailed concepts of statistics, mathematics, econometricseconomics, basics of machine learning, etc. and that's what should determine the prestige of CFA designation and not wether you paid $2k for it or $900 and had to fly to NYC to take it.

 

I'm one of those people that has actually been tracking the time I put in, so I have a minimum baseline for how long it took me. L1 was 283.5 hours and L2 was 433 hours. Now, for context, I need to add that my exam prep is entirely based on CFA materials and does not include any third-party prep services - I'm running this the old-fashioned way. But I will note, even with all those hours put in, my results for both the L1 and the L2 have been within the margin of error which, to me, does mean that you can "optimize" to make the exam easier for you by having a third-party eliminate a bunch of the fluff (empty filler text, lack of formatting clarity, reference to formulas used in previous levels without spilling them out, and MUCH much more). Per my experience, you can do this without the 3rd party stuff, it's just that digesting the original materials will take more time (which those who are working & studying may not have).

Re: costs - they upped it recently, the initial cost is the biggest because you get that one-time enrollment fee. Do agree with the general comment that it is the time that is the true cost here.

 

Kevin25

GregMadeMeDoIt

The CFA credential is a victim of its own success. There was a time in history maybe 15 years ago when it was at the height of its "prestige" and ability to advance a career. That created a ton of demand for the credential, so the CFAI expanded testing dates (and I think testing locations) and decreased the (inflation-adjusted) cost. It's not a "dime a dozen" credential yet, but it's about a dollar a dozen at this point. There was a time at its height where the CFA charter would replace a master's degree in its ability to advance a career, but I don't see that anymore. 

Simple CFA history: it used to be a pretty easy exam process that few people pursued (1980s/1990s). In time, it gained notoriety and with it they made the exam much more difficult, and they coupled it with extremely limited exam dates--twice a year for L1, once a year for L2/3 (2000s/2010s) + the exam was quite expensive (several thousand dollars in the 2000s). My L1 exam year, the pass rate on that test was something like 35%. This made the credential really difficult to obtain, not just because of the exam difficulty but because of the logistics and cost. Now the exam appears to have been democratized: the cost (especially relative to inflation) is much cheaper (just $900) with many employers paying for it, the pass rates are up (not hugely but with clear statistical significance: 41% 10-year pass rate for L1, which I assume means recent pass rates in the mid-40s), and the exam dates and locations have expanded. This will necessarily--in time--make the credential less valuable.  

1) recent L1 pass rate is still near 35% as Sio mentioned above

2) offering additional locations and dates to take an exam shouldn't be considered as something that diminishes value of the certificate. it's still only twice a year. and yeah you can take it in Chicago instead of flying to NYC, but how is it bad for prestige/reputation of the designation

3) $900 is still a pretty big cost to take an exam. add to that Kaplan materials cost, which is another $1k or more. and every time you fail, you need to pay another $2k for registration and materials. but the main cost is the amount of time you need to spend on it.

overall, I'd say it's more difficult to pass CFA now than before because they continue adding material. like 20 years ago, they'd just ask you about WACC and FCF. now you're supposed to know detailed concepts of statistics, mathematics, econometricseconomics, basics of machine learning, etc. and that's what should determine the prestige of CFA designation and not wether you paid $2k for it or $900 and had to fly to NYC to take it.

Offering additional locations and testing dates + reducing inflation-adjusted costs makes the CFA credential more attainable logistically and increases the number of marginal candidates taking the exam. Even if pass rates remained exactly the same, that would still indicate an easier exam.  

Just doing a simple average, the 10-year pass rate from 2004 to 2013 was about 38-39% (simple average, not weighted). In the 10 years through Feb 2023, the rate increased to 41%. Like I said, it's not a huge increase, but it's statistically significant. Add in the fact that you had 62% more people take the exam in 2022 compared to 2008, and it's clearly easier to pass L1 today than it was in a former CFA era. You have a slightly higher pass rate despite almost certainly having lower caliber test takers (because of lower barriers to entry with cost and testing locations and times) bringing up the denominator in the average.  

https://www.cfainstitute.org/-/media/documents/support/programs/cfa/cfa…;

 

I feel differently on a few points.

Offering the test more frequently can make a massive difference IMHO because the infrequency was what made failing costly and forced you to study beyond necessary. You get a passing score on a practice test but you have to keep grinding bc you don’t want to wait a year for the next chance.  Now if you wait only 6 months for your next shot (is that true?) then you can afford to take more risk and not grind so much to guarantee a pass.

Also, because of that same mentality, I don’t think pass rates tell you as much.  Someone is now more willing to risk failure so there will be more failures.

The real measure of difficulty is simply how many people are finishing.  I think it’s predictable that L3 finishers are going to start climbing if they haven’t already.

 

I disagree. I don't think the CFAI expanded exam dates and amended its curriculum because there were many people seeking the charter. Actually quite the opposite. I think expanding exam dates was their being desperate enough because the number of test takers was steadily declining. Covid hit them brutally and they understood that in addition to low demand, their policies are outdated.

Think about it. The CFA, which is extremely time consuming and offers too much depth in the subject, could be replaced by an MBA or a MSc from a top university that wouldn't require the same amount of work. The period you're addressing from 15 years ago was the beginning of the MBA modern glory imo. While the CFA offers insane knowledge, school offers the network and interview spots with big companies. Guess who will win.  

 

I disagree. I don't think the CFAI expanded exam dates and amended its curriculum because there were many people seeking the charter. Actually quite the opposite. I think expanding exam dates was their being desperate enough because the number of test takers was steadily declining. Covid hit them brutally and they understood that in addition to low demand, their policies are outdated.

Think about it. The CFA, which is extremely time consuming and offers too much depth in the subject, could be replaced by an MBA or a MSc from a top university that wouldn't require the same amount of work. The period you're addressing from 15 years ago was the beginning of the MBA modern glory imo. While the CFA offers insane knowledge, school offers the network and interview spots with big companies. Guess who will win.  

So you disagree with my assessment of their motive? I mean, your opinion is just factually incorrect. The # of test takers in 2019 was around twice the test takers as 2008. The expansion of access to the exam far pre-dates Covid--it's been on on-going expansion over the last 20(?) years. So, your opinion on motivation is just provably wrong. That said, yes, test taking since Covid has cratered, so yeah, any recent expansion of access is probably related to the cratering of interest.  

 

I wish they would do a survey about how happy these people are with their current jobs and where they want to be. Hard to interpret just based on %s since some people never have intentions of securing a HF or AM role.

 

Yeah it's just common knowledge at this point that the CFA sells dreams. I'd also personally add to that that the CFA sells an illusion - it blue pills you into thinking you're making solid/ tangible progress towards a good buyside seat by being a nerd and going home and studying for hours every day after work - when in reality, you're making very few progress (in terms of recruiting anyway. In terms of knowledge, I'd personally still argue you're making a fair amount). The thing you should be doing for lateralling is networking and building your real skillset. Not saying that they're mutually exclusive tho - you could 100% do both. So do both if you want to move to the buyside.

You should take ALL that into consideration when doing the CFA. If you still think it's a good bet, then the sky's the limit.

I also wanna push back against the common argument that '63% of charterholders don't even work in good buyside seats'. I talked to some Indian charterholders and I realized the reason why the employment stats for Charterholders are so weak is because many charterholders are in India and China or the other Asian countries which DO NOT EVEN HAVE high finance nor firms like Baupost or Blackstone. That severely bogs down the stats and paints a grim picture of charterholders for the HF roles you're vying for. A more comparable stat should be released

 

Could you expand on this? Idk about china but Indian laws don't allow traditional LBOs, yes MFPE do have offices here and returns have been okay, not great, from my(very very limited understanding) they operate more as later stage growth equity firms.Besides teams are incredibly small, I think India does have a great market for PE.Might I add, It should be the Emerging market for PE, but on the lmm-mm side, the returns there could easily be 25+% If executed properly 

 

My hesitation has been this: while the costs of pursuing the charter are very clear and quantifiable, the rewards (and their extent) are not. You could probably make the same argument for an MBA but I know less about that route. For the charter at least, you will spend ~$3000 in registration fees and (probably) another $1500 or so in prep materials. You will (probably) spend ~1000hrs preparing.
 

And what do you earn? The only consensus I can draw from reading this forum and speaking to SS ER associates/analysts is that the charter will broadly “never hurt and only help,” and LO AM shops demand it. For SS ER, which is my domain, you can read conflicting opinions on the charter serving as an on-the-job enhancer vs. a career-switching tool. You can read differing opinions on it being “absolutely necessary” or “obsolete.”  
 

Somewhat related to the other comment about international charterholders skewing the placement data—I still believe there is a strong survivorship bias at play when people on this forum say “look at how many CFAs work in ER/AM/HF.” Ctrl+F on a ‘meet the team’ page will for sure light up when you search ‘CFA.’ But you also have to consider how many charterholders have tried and failed (have the same posters done this?) and to what degree the charter/program had a role in placing that individual there.

I’m becoming more and more convinced that the utility of the charter can only be determined on a case by case basis. I don’t know enough about your background to make a suggestion, but I’d encourage you to consider why exactly you’re drawn to investing, which, by the way, encompasses more than just HF/AM. Home in on what you want to do and start asking real people about it in real conversations. You say you’ve met people in your situation … I would bet their experiences and advice would far outweigh what anyone here has to say.

 

CFA can still have some value depending on what part of your career. Just like college (though to a lesser extent) it signals some base level of competency and importantly, shows that you're interested and committed enough to study and pass a test that doesn't matter and doesn't provide a ton of knowledge. But when you're comparing candidates that are similar, a relevant qualification can help. If your goal is the buy-side, moving to a credit ratings role and then to the sell-side (IB/ER) or buy-side (Credit). You could probably get a credit ratings role without the CFA, but it probably helps. And you can continue your study while there since you're working like 35-50 hours. CFA isn't a Panacea, and alone won't get you to the buy-side. It's more like a supplement. The only true panacea in life in my experience, is making sure you know what color your Bugatti is (or so I've heard).

 

Well my Bugotti is completely transparent. But I do have a CFA, and I'm pretty happy with with it. But I would say that while a CFA could in some ways help you move from the backoffice to the front, it's realistically more valuable for people that are already in the front office. Yes many back office folks want to move to the front office. Can taking three exams get you there? Come on, did you really think so? Does a PE make you an engineer? Or do they give PEs to people who have enough qualifications to maybe be an engineer if they dare to try? You want to move from back office to front, you need to do a couple things. First, you need to be great at your job. Second, you need to build relationships with people in the front office, and demonstrate competence to do those jobs. Third, you need to get lucky. But you can to a degree make your own luck, it often makes sense to promote a qualified and visible backoffice person rather than do a new hire when a position opens up.

 

If I was interested in X topic and I found Z certificate that covered 60 - 80% of what I was already planning to learn on my own (even if no certificate existed) then I would take it. The fact that the certificate also has some advantages career-wise would be an extra point but by no means an important one. So the question of whether the CFA is selling dreams or not should be irrelevant for someone interested in markets.

Now, in your case, the MBA may be the fastest and safest way to change your career. If not, another possible path would be to pass the CFA lvl. 1 (to prove that you're dedicated) and network with AM or HF - an uphill battle on its own but still worth trying before paying 6 figures for B-School.

 

I’m in a similar boat as you, poster.

Small AM team, more operational role. A few of my colleagues do have the CFA, and honestly I get conflicting reports from them. They both do front office roles. One says that it was worth it. Other says that if he did it all over again, he would go for the CFP instead. Our own research analyst doesn’t have plans to go for it.

Im still thinking about it myself, wanting to be fully prepared before making the huge commitment. I would keep talking to mentors/charterholders to see their opinions. It also feels really like a case-by-case basis.

 

I have been in your shoes. The CFA will definitely help and is far more cost effective than business school, however, don't make the mistake of putting so much time into the CFA that you neglect the more important components to finding an investing role: networking, applying to roles, interview skills, financial modeling, and developing your story.

Business School is not your only option but should instead be viewed as your last option. It's roughly a $500k bet on yourself (including opportunity cost) and the economy can always be in bad shape when you graduate. To be honest, if you put a couple of years into the CFA, modeling, and rigorous networking I'd be very surprised if you didn't find something. Also look at single/multi-family offices and wealth management firms as either destinations or stepping stones as they both have research analyst in various different capacities.

 

How frequently do you see people making that transition in the industry? It is something that I have considered doing.

 

Charterholder here so I may be slightly biased. I don’t thinks it’s fair to say that the CFA represents itself as some magic bullet for the buyside. As with any position you aspire to it’s usually best to check out the backgrounds of the people at that firm to get a sense of what experience / education is needed. If you did this you’d find the CFA pop up in a few roles consistently: sell side ER, long only AM shops (Fido, T Rowe), pensions/ endowments. Those pretty much represent the holy trinity of jobs requiring the CFA.

Additionally as someone who routinely reviews resumes with similar sounding experiences for corporate finance gigs, the CFA is an easy way to separate yourself from the pack. 

In regards to the difficulty of the test and the perceived ease of getting the charter now as opposed to the 2000s I’d push back somewhat. MPSs have consistently gone up over time which I would say somewhat offsets the increased frequencies at which exam is offered. I don’t think it’s fair to say someone who got their charter in 1992 had a tougher path than one in 2022. 

But the moral of this is to please examine what you want to do with your career before jumping into L2 and L3. If you see a huge dearth of charterholders in the role that you’re aspiring to then odds are your journey should end with L1.

 

I personally think cfa wasn’t a great use of my time. Went to non target for undergrad. Worked in investment banking for 5 years prior to attending a top 3 MBA program with the goal of transitioning to long only analyst role afterwards. I’m sure the cfa helped me do that but the MBA program and my work experience were much more important to making that transition. I wish I spent the time studying for the cfa learning a language, playing golf, etc. Nobody cares about the cfa  at my shop (midsize asset management firm). Work experience was much more important to getting the seat.

 

How often do seats open up at some of the mid sized shops? I’m assuming it’s probably even less than the large LOs?

 

If you do CFA for the education, instead of the charter, you’ll get some value out of it. 

The mistake people make is they want the CFA to be a ticket into an exclusive world where only credentialed people can enter. And that world doesn’t exist.  You’re not just competing with all the CFAs but also many people who went to top schools or landed jobs at household-name shops that carry more weight than a CFA does.

But most of all, you’re competing with people who know their shit. That’s your true competition.  Some are credentialed, some aren’t, but this is the group that lands the job.

So focus on what the program can teach you and keep learning from there.  

You (along with most others) have a “break into the role” mindset which sort of implies there’s some code to crack.  There really isn’t.  Especially in public investing which is more meritocratic than other professions given 24/7 performance measures.  Nothing is a perfect meritocracy but for the most part, it’s about being able to deliver performance and that’s it. It’s not about which credential or “pipeline” you position yourself around.

 

That makes sense and it’s actually why I’m very attracted to the industry. Unfortunately it’s very hard to get a shot at proving yourself if you don’t have the right background which I thought the CFA would help with.

 

I’m not going to say that people with better notches on their belt (especially junior roles in IB or PE) aren’t going to get a leg up all else equal.

But a big reason buy side roles are filled with target schools/backgrounds is that those are where many of the strongest candidates happen to be. 

So all else is not equal. Average Harvard/GS kid is smarter & better prepared than average non-traditional. A non-traditional who is actually as smart & prepared as the Harvard kid has a pretty comparable chance. Sure there’s a leg up for the Harvard/GS kid but it’s a lot less than people think.  

 
Dr. Rahma Dikhinmahas

If you do CFA for the education, instead of the charter, you’ll get some value out of it. 

The mistake people make is they want the CFA to be a ticket into an exclusive world where only credentialed people can enter. And that world doesn’t exist.  You’re not just competing with all the CFAs but also many people who went to top schools or landed jobs at household-name shops that carry more weight than a CFA does.

But most of all, you’re competing with people who know their shit. That’s your true competition.  Some are credentialed, some aren’t, but this is the group that lands the job.

So focus on what the program can teach you and keep learning from there.  

You (along with most others) have a “break into the role” mindset which sort of implies there’s some code to crack.  There really isn’t.  Especially in public investing which is more meritocratic than other professions given 24/7 performance measures.  Nothing is a perfect meritocracy but for the most part, it’s about being able to deliver performance and that’s it. It’s not about which credential or “pipeline” you position yourself around.

100% truth, love it

 

I don’t want to respond directly because I’m a little sick of the awkward debates.  So I’m just going to say this on the top level of comments here.  

Charterholders, including a few in the comments, love to slyly insinuate that the charter is quasi-required for active management roles, particularly at Fidelity and similar places. I’m just here to say I think that’s totally inaccurate and coming from a place of charterholders being promotional.

I’m sure big shops like Fidelity have lots of ancillary roles (i.e. not fundamental analysis) that have a high preference for the CFA.

I’ll go further to say that many people in fundamental roles picked up the CFA as a hedge in their early career.

But the idea that you need a CFA to get a fundamental analysis job, I don’t believe for a second.  Thats’s just classic correlation error.  I bet 90% of those people are right handed but you wouldn’t say you need to be right handed to get that job.  They got the CFA because when you don’t know your career yet, why the hell not?  I personally know several CFAs in fundamental roles who’d love that time back. 

Focus on what you will learn from the CFA. The credential game really isn’t worth playing.

 

the cfa does have benefits:

signaling value: its a badge of honor showing interest in the field. shows you can put in the work.

network: finance is all about networking to find the next opportunity. local cfa charters and internal recommendations go a long way.

raising funds: investors like the stamp of approval. they have countless opportunities to invest in, so differentiating yourself through the pedigree of the program helps with image / branding